What Happens When a Change to Florida Law Alters Your Commercial Lease?

A recent case decided by the Fourth District Court of Appeal offers useful insight on a somewhat unusual, but nevertheless important, scenario. What happens when your commercial lease narrowly restricts the kind of business you can run, and the state government changes the laws later to make that business illegal? That is what happened to a computerized slot-machine arcade in South Florida, and, in this case, the appeals court concluded that the lease at the center of the dispute was so restrictive that it prevented the tenant from living up to its contractual obligations while at the same time remaining legal.

The contract in question was signed in early 2013 by Lucas Games, which entered into a commercial lease agreement to rent a property from landlord Morris AR Associates LLC. The agreement called for the tenant to operate an adult arcade at Morris’ property in Stuart, Florida. The deal contained several strict terms. The lease said that the sole purpose of the tenant’s business was operating a entertainment arcade business for people age 18 and up. It also dictated that the business was to exist only under the name “Vegas Fun,” and “coin-operated amusement devices” were expressly prohibited.

Lucas complied with the contract. Instead of using coin-operated gaming devices, Vegas Fun offered a selection of computers upon which customers could play a simulated version of a slot machine game and win prizes like gift cards. Unfortunately for Lucas, the Florida Legislature changed the law in the spring of 2013 to outlaw computerized slots outside designated casinos. The new law did create an exception to this change for coin-operated devices, but the tenant’s lease agreement expressly banned those.

Severely hamstrung by the new law and the lease, Vegas Fun permanently closed, and Lucas vacated Morris’ premises. The landlord sued the tenant for breaching the lease, among other causes of action. The tenant argued that the court should excuse it from performing under the lease because the change in the law left it unable to carry on its business. The trial court was not persuaded and issued summary judgment in favor of the landlord.

The tenant appealed, arguing that the changes to the statute that governed computerized slots made the parties’ lease illegal. The landlord countered, arguing that Vegas Fun could have simply eliminated casino-style gaming in favor of legal options, such as skee-ball. The appeals court, apparently finding the skee-ball argument unpersuasive, sided with the tenant, reversing the summary judgment in favor of the landlord and sending the case back to the trial court. Ultimately, it was the profound restrictiveness of the terms of the lease agreement that led to the landlord’s defeat. The landlord, by the express terms of the agreement, barred the use of coin-operated slot-machine games. The state, by the express terms of the statute, barred the use of computerized slot-machine games.

The tenant’s predicament was much like the one in a century-old case the court cited in ruling in Lucas’ favor. In that 1919 case, Christopher v. Charles Blum Co., the Florida Supreme Court stated that, when a tenant signs a lease to rent a commercial property for “a particular specific purpose,” and the Legislature subsequently changes the law to make that business illegal, “the subject-matter of the contract is destroyed, and the covenants of such lease will not be enforced against either party.” Just as in Lucas’ case, the lease in the Christopher case was so restrictive that, when the state changed the laws, the tenant was prevented from remaining compliant both with the law and with the lease contract.

In business, there are many surprises that can affect the future of your operations. Some may have profound effects, such as a change in the law that affects the fundamental nature of your business. When events like these or others affect your commercial lease, capable legal counsel on your side can be invaluable. When you need reliable advice and advocacy in your commercial lease issues, talk to the South Florida landlord-tenant attorneys at Stok Folk + Kon. Our attorneys can help you assess your options and develop a plan that works for you.

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